On Our Radar

CBO Finds Medicare Looking a Little Healthier, But What About Social Security?

Ahead of this week’s release of the annual report on the 75-year financial outlook for Social Security, the Congressional Budget Office published its own 25-year projection of the program in which it also analyzed in Medicare, Medicaid and expenses under the Affordable Care Act.

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The conclusion? Too many older Americans.

In the words of the CBO, “…aging is the key driver of spending over the long-term...[I]t accounts for 55 percent of the projected growth in federal spending for Social Security and the major health care programs as a share of GDP through 2039.”

In other words, if Americans would just die earlier, the federal budget would not be facing such a big squeeze in the coming years.

“Peculiar.” That’s how Virginia Reno, a vice-president at the National Academy of Social Insurance (NASI), characterizes the CBO’s report. “It’s remarkable that they consider the people of the United States to be a problem.” Indeed. Would it not be more productive for the analytical arm of Congress to instead focus on providing suggestions as to how we can address this challenge?

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Instead, CBO wrings it hands over the fact that individuals over the age of 65 will make up a bigger share of the population, increasing from 14% today to 21% by 2039.

No kidding!

Do you think it might have something to do with 76 million baby boomers getting older? This huge demographic- likened to a pig being digested by a python- has swelled the ranks of every age group it has moved through. School systems were bursting at the seams when boomers were growing up, then college enrollment soared, home ownership took off as they began families of their own and now the oldest members of this generation are entering their 60s.

Unfortunately, by choosing to just extend its analysis to 2039, the CBO conveniently omits an important piece of the story. It’s true that over the next 25 years Social Security payments will increase to 6% of gross domestic product from 5%. However, when considered in terms of the overall national economy, “that’s a very small change,” says Reno. Furthermore, no additional increase is projected for the foreseeable future. Even after the last baby boomer is dead and gone, retirement benefits for our oldest citizens flatten out at about 6.1-to-6.2% of GDP for the next 50 years due to the forecast that life expectancy will continue to increase.

Although the CBO report refers to the portion of GDP that Social Security represents, it’s critical to understand that Social Security benefits do not come from the income taxes Americans pay each year. Social Security is an off-budget item. Social Security benefits are paid from payroll taxes collected from working Americans and assets accumulated in the Social Security Trust Fund.

“By law, Social Security cannot contribute to the federal debt because it can’t borrow. It’s actually a lender to the rest of the federal government,” says Reno. In fact, for 30 years, Congress has been “borrowing” the excess money that Social Security has been accumulating in the Trust Fund in anticipation of the time (now) that the large baby boom generation would swell the ranks of retirees. And guess who contributed the lion’s share of the money to the Trust Fund? Baby boomer workers!

It’s not Social Security benefits per se that are the issue. The CBO report points out that federal spending on health care is a significantly bigger problem. This includes Medicare, Medicaid, the Children’s Health Insurance Program (CHIP) and subsidies offered through health insurance exchanges via the Affordable Care Act. Outlays on these programs- which are funded out of general tax revenues- “would grow much faster than the overall economy, increasing from just below 5 percent of GDP now to 8 percent in 2039.”

Once again, though, the growing number of Americans over age 65 gets most of the blame. As we age, we tend to spend more on healthcare. Plus, by living longer, that spending continues for more years.

But I have to give them credit. The CBO bloggers bravely point out that Medicaid- the health assistance program funded largely with federal dollars but administered by the states- has now been expanded to include “most nonelderly adults” who have income less than 138% of the federal poverty level.

In fact, compared to Medicare (the healthcare program for retirees), the cost per enrollee in Medicaid and private insurance is expected to grow more rapidly over the coming decade. “Each year between 2018 and 2024, 13 million more people, on net, are projected to have coverage through Medicaid and CHIP than would have had such coverage” if the Affordable Care Act had not been enacted.